Why Doesn't Cloud Peak Energy Inc Pay a Dividend?

Cloud Peak Energy is one of the few profitable coal companies today -- so why doesn't it pay a dividend?

Mar 11, 2014 at 10:24AM

It's been dark days for the coal sector lately. China, which accounts for roughly half of all coal demand, has seen its economy slow significantly. The Environmental Protection Agency, through stringent regulations, has basically decreed that no new coal plants be built in the United States. 

It's no surprise then that many coal companies, including Walter Industries (NASDAQOTH:WLTGQ) and Peabody Energy (NYSE:BTU), have seen their stocks falter in the weak sector climate.

Cloud Peak Energy (NYSE:CLD) is one of the only coal companies making a profit in this environment. Yet unlike Walter Industries and Peabody Energy, the company does not pay a dividend, and according to its 2013 annual report, it has no plans to pay a dividend in the near future. So why doesn't Cloud Peak Energy distribute any of those profits to shareholders?

Low-cost producer planning for the future
Relative to the other U.S. coal miners, Cloud Peak Energy is in great shape. The company has a major competitive advantage in that it operates solely in the Powder River Basin. 

Coal in the Powder River Basin is both cheap to produce and low in sulfur, which is attractive for utilities that need to meet environmental regulations. According to the EIA, the spot price for Powder River Basin coal is around one-fourth the price of Illinois Basin coal, and one-fifth the price of Appalachian Basin coal.  Powder River Basin coal also has the lowest sulfur content of coal in all the major U.S. basins.  

Because of its low production costs, Cloud Peak Energy's profits have stayed in the black. Because the company is cash flow positive, the company is trying to expand selectively. The company's planned expansion is the main reason why Cloud Peak Energy does not pay a dividend.

In 2012, the company paid $300 million in cash for the rights to the Youngs Creek project, an undeveloped greenfield surface mine that will require significant capital expenditures to develop. When completed, the Youngs Creek project should help Cloud Peak Energy increase its probable coal reserves and production volumes. 

In 2013, the company also entered into exploration agreement with the Crow Tribe of Indians, who have land adjacent to the Youngs Creek project, to possibly develop their coal reserves as well. 

When completed, the two projects should also help Cloud Peak Energy better position itself to export to Asia. Of the the total 89.1 short tons Cloud Peak Energy sold in 2013, only 4.7 short tons were sold to Asia. 

Cloud Peak Energy's exports to Asia should increase in the future as the company tries to secure export capacity through various terminals in the Northwest. 

The bottom line
Cloud Peak Energy could absolutely pay a dividend. It has the cash flows and the balance sheet to do so. The company chooses not to because it is using this cash to expand selectively without stretching its balance sheet. The careful expansion is a sign of excellent management. 

There is no question that the coal industry is suffering right now, but there is still a future for coal. Even though U.S. demand for coal will likely diminish over time, Asian demand will still be relatively strong. Due to its proximity to the Pacific, the Powder River Basin is one of the best geographically placed coal basins to export to the Asian consumers in South Korea, China, and India. Because of that future growth potential, I believe Cloud Peak Energy is a great company and a sound investment. 

Not willing to wait on those dividends?
Despite Cloud Peak's decision to reinvest its extra cash, dividend stocks as a group still handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

 

Jay Yao has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers